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US Budget Deficit, Borrowings Rise

The US government is borrowing 15 cents of every dollar it spends
The Congressional Budget Office is predicting deficits will, more or less, remain in the $600 billion range for the next several years.The Congressional Budget Office is predicting deficits will, more or less, remain in the $600 billion range for the next several years.

The government ran a $587 billion budget deficit for the just-completed fiscal year, a 34% spike up over last year after significant improvement from the record deficits of President Barack Obama's first years in office.

Friday's deficit news, while sobering, does not appear bad enough to jolt a gridlocked Washington into action to stem the flow of red ink. It came in an annual report by the Treasury Department and the White House budget office, news outlets reported.

The latest figures show that the government is borrowing 15 cents of every dollar it spends. Government spending went up almost 5% to $3.9 trillion in fiscal 2016, but revenues stayed flat at $3.3 trillion.

Obama came to power after the 2008 financial crisis and as the economy was still emerging from a deep recession, and the deficit spiked to $1.4 trillion, which required US Treasury to borrow 40 cents for every dollar spent by the government. It remained above $1 trillion for three more years before declining to $439 billion last year as the US economy continues to slowly grow.

"The Obama administration's agenda has spurred durable economic growth and the longest streak of job growth on record, while sharply reducing the deficit to a sustainable level," Treasury Secretary Jacob Lew said in a statement. "We have built a solid foundation for continued investment in economic growth and opportunity for all, while maintaining fiscal discipline and using fiscal space appropriately to grow the economy."

Deficit to Stay

Now, the Congressional Budget Office is predicting deficits will, more or less, remain in the $600 billion range for the next several years. Those are eye-popping numbers to the average person, but they represent about 3% of the size of the economy, a level many economists say is bearable.

But the picture over the long run is more problematic, at least under a conventional view that if deficits continue to rise the national debt grows, government borrowing would "crowd out" private lending and force up interest rates. And if interest rates go up, the government would have to pay much more to finance the more than $14 trillion in Treasury debt held by investors.

"We're going into a debt spiral and, depending how far down you get in that spiral you have a sovereign debt crisis," said Holtz-Eakin, a former GOP-appointed CBO director. "That's just running a big risk for the budget and the economy."

$3.27t in Taxes

The federal government collected $3.27 trillion in taxes in fiscal year 2016, according to the latest monthly Treasury Department statement.

Treasury receipts include tax revenue from individual income taxes, corporate income taxes, social insurance and retirement taxes, unemployment insurance taxes, excise taxes, estate and gift taxes, customs duties, and other miscellaneous items.

After adjusting for inflation, the amount of taxes collected by the federal government in fiscal year 2016 is slightly lower than the $3.3 trillion the government collected in fiscal year 2015. The 2016 fiscal year began on Oct. 1, 2015, and runs through Sept. 30, 2016.

The federal government collected $3,266,688,000,000 from October through September in fiscal year 2016. Most of the $3.27 trillion came from individual income taxes, which comprised almost half of that total at $1.55 trillion.

Although the federal government brought in approximately $3.27 trillion in revenue in fiscal 2016, according to the treasury, it also spent approximately $3.85 trillion, leaving a deficit of approximately $587 billion.

Growth Downgraded

The International Monetary Fund recently downgraded the economic growth outlook for the United States to 1.6% in 2016, which is the largest one-year drop seen for an advanced economy, according to the Fund’s World Economic Outlook report.

According to the report, the United States grew at a rate of 2.6% in 2015 and is projected to slow to 1.6% in 2016, a decline of 38%. The United States’ decline in growth is the largest one-year drop seen in all of the advanced economies such as the United Kingdom, Canada, Germany, Italy and Spain.

 

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